Cable-firm strategies stress customer service
Denver — The cable industry may once again have a strong wind in its sails, but some of the waters ahead are choppy. Cable operators will be able to beef up their revenues with higher rates and lower construction costs, but ''that doesn't mean all those dollars will fall right to the bottom line,'' cautions industry analyst John Reidy of Drexel, Burnham, Lambert in New York. He and others note an urgent need to plow some of those new dollars into expenses of a different sort: marketing and customer service.
In the glory days of the business, when cable went largely to areas where television signals didn't and when movie and sports channels were a sought-after novelty, cable operators paid scant attention to attracting new customers or keeping old ones happy. Pulling down customer sales was largely a matter of stringing up new markets.
No more. Most of the new markets are cities, which carry a hefty price tag for new cable construction. In addition, the cities that already have cable still have lots of potential customers who so far have found cable distinctly resistible. Unlike customers in older, more remote markets, most urban dwellers can watch TV without a cable hookup. They have also not been as dazzled as expected by the prospect of multiple movie channels, massive doses of sports, community programming, and ''shows such as 'How to Build a Model Airplane,' '' as Mr. Reidy puts it.
In Denver, for example, a joint enterprise of Time Inc.'s American Television & Communications Corporation (ATC) and Daniels & Associates, headed by one of the industry's founders, has found unexpectedly stiff opposition among potential subscribers to its Mile Hi Cablevision franchise. Mile Hi initially proposed an operation that included over 80 channels, 21 studios around the city for local production, and loads of programming options. The initial proposal to the city estimated that over 55 percent of the homes passed by the cable wires would sign up for it.
To date, Denver's Mile Hi Cablevision has penetrated only 30 to 35 percent of that market, having passed 130,000 homes. Part of the problem, explains Mile Hi president Fred Dressler, stemmed from early lawsuits that absorbed much the company's energy. The most troubling suit, brought by the conservative Mountain States Legal Foundation, challenged the right of the Denver City Council to grant a monopoly. The outcome was a general election in which Denver voters elected Mile Hi as their cable operator.
But a competitor criticizes Mile Hi for a skimpy marketing effort, at least initially. The industry woke up to the importance of aggressive marketing about two years ago, but it was only recently that the Denver franchise shifted into an effective direct mail and advertising program.
''I don't know why they took so long,'' commented the competitor. ''Maybe they thought they only had to string the wire and wait for the truck chasers (people who call to subscribe as soon as they see the cable truck in their neighborhood) to sign on.''
During the general election, Mile Hi was also slow on the marketing uptake. Company executives were surprised by a poll, taken close to election day, that showed substantial apathy on the part of voters toward Mile Hi. The firm slapped out a hasty and successful advertising campaign extolling the benefits of electing Mile Hi.
The lawsuit actually carried a silver lining, an important one to Mile Hi. It gave the company a reason to go back to the City Council and renegotiate the franchise, slimming it from over 80 channels to 61. A number of cable operators, in fact, have found that the ''blue sky technology'' (meaning technology that is sophisticated but relatively untried) that was originally promised in franchise bidding ''cannot be supported economically,'' says one analyst. ''So they're going back to the cities and asking to cut the systems back . . . Blue sky cable is out, basic cable is in.''
The company also came in for withering criticism during a recent public hearing for virtually ignoring customer service, a problem Mr. Dressler concedes but says is in the past. People would call up to subscribe, complain, or question, and find themselves put on hold for up to half an hour. Mr. Dressler says that where the company used to have one operator for every 3,000 calls, it now has one operator per 500 calls. Where 40 percent of the people who called eventually hung up, the ''abandonment rate'' has dropped to 10 percent.
Denver's problems are by no means unique. Cablevision, which owns the Boston franchise, has found that city to be a much thinner piece of pie than anticipated. The company recently revised its revenue forecasts downward and has taken the same sharp criticism on customer service as Mile Hi.
Mile Hi's response to those problems, more dollars spent on marketing and customer service, are becoming typical of the industry's current posture.
''What's happened in Denver and Boston is not at all unusual,'' says a marketing vice-president with another cable company. ''The cities frequently don't pick up the penetration the franchise companies expect. It's happened to us in several locations, and it's happening all over the industry. Customer service is a problem across the board, probably because cable just isn't as hot anymore. If anything, we're victims of our own success.
''We used to think a cable company was a combination construction company and money machine. You string the cable and start making money. That's obviously not true. We are a service industry and have to think of ourselves that way.''